Australia's current account surplus widened sharply to $18.3bn in Q2 as elevated commodity prices delivered record highs for the quarterly trade surplus and the terms of trade. Net exports are forecast to add 1ppt to quarterly GDP in tomorrow's national accounts.
- Australia's current account surplus widened by $15.6bn in the quarter to come in at $18.3bn (vs $22bn expected). The surplus in Q1 was downwardly revised to $2.8bn from $7.5bn.
- The quarterly trade surplus surged higher rising by $16.3bn to print at a record high of $43.1bn. Export earnings accelerated by 14.7%q/q, far outpacing a 4.6%q/q rise in import spending.
- The income deficit was $0.7bn wider on the quarter coming in at $24bn.
- ABS reports that net exports will add 1.0ppts Q2 GDP growth.
Balance of Payments — Q2 | The details
Australia's current account has been in surplus since the June quarter of 2019, the longest run of surpluses on record confirmed after today's outcome for Q2 ($18.3bn). This was substantially wider than Q1's surplus ($2.8bn).
The driving factor was the rewidening of the trade balance. For the past couple of quarters, the trade surplus has narrowed because spending on imports has risen faster than earnings generated by Australian exports, reflecting both strong domestic demand and rising inflation. In the June quarter, export earnings lifted by 14.7% to $172.3bn while import spending was 4.6% higher at $129.2bn. That led to the trade surplus widening to $43.1bn in Q2, a record high. Elevated commodity prices on the back of the Ukraine war and other supply disruptions drove the surge in export earnings.
Accordingly, Australia's terms of trade (ratio of export prices to import prices) has reached a new record high. As a commodity exporter, Australian national income has been boosted by the surge in prices; this is the opposite scenario currently faced by the European and UK economies, which as energy importers have seen their terms of trade collapse, resulting in large capital outflows and weaker currencies.
In volume terms (adjusting for price movements), export volumes posted a 5.5% rise in Q2 while imports were little more than flat (0.7%). As a result, the ABS reported net exports are expected to add 1ppt to Q2 GDP growth.
The major drivers of export volumes were a rebounded in resources exports (4.1%), after weather-related disruptions led to a fall in shipments in Q1 (-2%), and services (13.7%) as the recovery in the sector picked up following the full reopening of the international border.
The main theme playing out in imports is the divergence between goods (-1.6%q/q) and services categories (14.3%q/q). Demand patterns are rotating back to services from goods with Covid restrictions now removed. Overseas travel is recovering strongly (up 38.6%q/q) but is still more than 60% below pre-Covid levels. For comparison, inbound travel is down by a similar amount.
Balance of Payments — Q2 | Insights
An easing in weather-related disruptions saw resources exports rebound, supporting economic activity in Q2. The services sector is recovering strongly following the reopening of the international border, driving a rotation in demand from goods-related consumption. Elevated commodity prices are generating a very significant tailwind for national income.
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Also today, the ABS published quarterly statistics for public demand. The main features were a 0.8% fall in government expenditure, after spending was boosted by flood recovery assistance in Q1, while underlying investment lifted by 3.4%. Overall, the ABS estimate public demand will add 0.1ppt to Q2 GDP.
